Most people assume that when someone dies, their assets will be distributed to their heirs. But when the deceased’s debts exceed their assets — when the estate is insolvent — the process changes significantly, and beneficiaries may receive nothing at all.

An insolvent estate is administered under the Insolvency Act rather than the Administration of Estates Act. Creditors take priority, assets are liquidated to settle debts in a prescribed order, and a trustee may be appointed in place of an executor. The process is more complex, more adversarial, and requires specialist expertise.

This infosheet explains what an insolvent estate is, how the administration process differs, how creditors are ranked and paid, and what beneficiaries need to understand when the estate they expected to inherit from cannot meet its obligations.

1 When an Estate Is Insolvent

• Debts exceed assets
• Property is heavily bonded
• Large medical or business debts exist
• Creditors lodge significant claims

2 What Happens in an Insolvent Estate

• The estate is administered under the Insolvency Act
• A trustee may be appointed instead of an executor
• Assets may be sold to pay creditors
• Beneficiaries may not receive inheritances

3 Rights of Creditors

Creditors are paid in a strict order:

• Secured creditors
• Preferent creditors
• Concurrent creditors

4 What Beneficiaries Need to Know

• They cannot receive assets until creditors are paid
• They may receive nothing if debts exceed assets
• They may still inherit from policies payable directly to them

5 Why Insolvent Estates Require Expertise

• Complex legal requirements
• Detailed accounting
• Strict timelines
• High risk of disputes